The Risk Spillover Effects of the Real Estate Industry on the Financial Industry: A GARCH-Time-Varying-Copula-CoVaR Approach on China

Yunsong Xu, Hanying Qi, Jiaqi Li and Ning Ding

SAGE Open, 2021, vol. 11, issue 4, 21582440211067226

Abstract: This paper analyzes the multiple transmission mechanisms of the real estate industry’s risk spillovers to the financial industry. A GARCH-time-varying-copula-CoVaR model is used to measure the spillover effects and dynamic evolution trends of risk in the Chinese real estate industry. The results show that (1) in recent years, the risk spillovers from the real estate industry to the whole financial industry in China has been relatively high, and the possibility of systemic risks has increased. (2) The channel of the risk spillovers of the real estate industry into the financial industry has shifted from being concentrated within a traditional single banking industry to the accumulation and superposition of risk across the banking, securities, trust industries. (3) Current regulations have not fundamentally mitigated the risk spillovers. As such, this paper proposes three suggestions on financial policies and regulations: firstly, the government should reasonably regulate cooperation between the real estate industry and the financial industry, curb excessive speculation and abnormal fluctuations in real estate prices. Secondly, the government should maintain the continuity of regulatory policies, formulate differentiated policies according to the essential attributes of given industries, and eliminate risk contagion among the real estate industry and financial industries. Thirdly, the government should improve the macro prudential management framework.

Keywords: real estate industry; financial industry; risk spillover; systemic risk; financial regulation (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:sagope:v:11:y:2021:i:4:p:21582440211067226

DOI: 10.1177/21582440211067226

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